Why is the Price for Daraprim Insanely High?
It’s a bit scary when a part of your daily medication, overnight, has its price increased by 5000%. That is exactly what happened to many patients with HIV, pregnant women, and those with weakened immune systems. Daraprim is a drug that was created over 60 years ago that treats toxoplasmosis, “an infection contracted from cat parasites that can cause birth defects,” (Seidman). Turing Pharmaceuticals purchased the rights to Daraprim and increased the price of one tablet from $13.50 to $750. What a jump! To put it into perspective, physicians estimate the cost of treatment for an individual weighing less than 132 pounds will cost $336,000 annually. Dividing this cost by $750 and multiplying the result by the original price, $13.50, I had estimated previous costs to have been around $6,048 annually. For a person weighing more than 132 pounds, physicians estimate the cost of treatment to be $634,500, whereas it had cost an estimated $11,421 before the price increase.
Bottle of Daraprim, 100 tablets. Cost: $75,000.
So, now you may be thinking, what allows the CEO of Turing Pharmaceuticals, Martin Shkreli, to continue to sell Daraprim at this insane price? Martin Shkreli has an immense amount of bargaining power. This is for several reasons. First, Daraprim is the only drug on the market that effectively treats toxoplasmosis. Second, there are no generic drugs in the market. Third, these patients need this treatment as it is the most effective. As such, Shkreli is able to sell Daraprim at absurd prices and still sell as people require this drug for survival and because there is no competition.
Then, how do we fix this problem? The most effective solution will be the creation of a generic brand of Daraprim. By introducing an equally effective alternative to the drug, prices will drop. People and hospitals will rush to the generic brand as its prices are lower, increasing customer valuation towards the generic brand. As a result, Daraprim will have to drop prices as well to stay in business. Therefore, the introduction of a generic brand will drive the costs to market-clearing prices to an affordable and socially acceptable level.
The prices may drop in a few years when a generic brand is introduced; however, circumstances for those in need of Daraprim presently do not look promising. The payoff in the long and short run for Shkreli to drop his prices now is little to none if he cares little about public opinion. Even if patients are put on less than effective treatments, there will still be patients and hospitals purchasing the drug. Thus, Shkreli will still make a large profit, equating to a large payoff. If he were to reduce the price now, he would be making less, lowering his payoff. Additionally, when a generic brand does get introduced into the market, prices will drop and further lower his payoff. If he keeps his prices as is, he will retain his large payoff in the short run.
Hopefully, politicians will introduce new regulations that will prevent situations like this from happening in the future. Abusing one’s bargaining power in the drug industry, when lives are on the line, is inexcusable and should not be allowed.
Source:
http://www.cbsnews.com/news/generic-drug-price-increases-5000-percent-overnight/